Russia Seeks $2 Billion Gain With Oil Extraction Tax Increase

By Evgenia Pismennaya, Olga Tanas and Stephen Bierman -
May 14, 2013

Russia’s Finance Ministry is seeking
to raise $2 billion by raising taxes on crude output as the
world’s largest oil-producing nation seeks to boost budget
revenue, according to a plan presented to government officials.

A higher mineral extraction tax rate will be partly offset
by a decrease in export duties, according to the document. The
budget’s gain is based on an average oil price of $100 a barrel.

Russia is fighting to balance the budget after President
Vladimir Putin pledged to boost social spending in his campaign
for a third term in the Kremlin and as the country prepares to
host the 2014 Winter Olympics and 2018 soccer World Cup. The
economic outlook has dimmed after gross domestic product
expanded an annual 2.1 percent in the last three months of 2012
from a year earlier, the slowest rate since a 2009 contraction.

“Calculations have been made and they’re now being
discussed with oil industry representatives,” Svetlana
Nikitina, an aide to the finance minister, said by phone today,
confirming the proposed numbers.

The ministry is recommending an 8 percent increase in the
base oil extraction tax rate to 508 rubles ($16) from 470
rubles. In a concession to domestic producers, which ship about
half their crude abroad, the rate used to calculate the oil
export tax may be cut by 2 percentage points from the current 60
percent, while the duty on straight-run gasoline may be lowered
to 80 percent of the crude oil tax from 90 percent, according to
the document.

‘No Consequences’

The oil taxes may be changed starting as early as next
year, Ilya Trunin, head of the Finance Ministry’s tax
department, said April 29 in Moscow.

Producers including state-controlled OAO Rosneft and OAO
Lukoil (LKOH), Russia’s two biggest oil companies, have lobbied for tax
cuts and holidays to encourage exploration and development of
increasingly remote areas to maintain crude output at a post-Soviet high of more than 10 million barrels a day as traditional
West Siberian fields age.

The changes will have “no consequences” for oil producers
or refiners, according to the document. The lower oil export
duty will “almost fully compensate” producers for the higher
mineral extraction levy, while refiners will gain from an
increase in domestic gasoline prices, spurred by the lower
export duty on the motor fuel, according to the document.